In the latest reminder that 7 years after the financial crisis, the US banking system still remains a systemic risk, Minneapolis Fed President Neel Kashkari today released four-step plan to end too-big-to-fail problem. The reason for the proposal: America's "biggest banks continue to pose a significant, ongoing risk to our economy" and "One analogy that helps highlight the trade-off of costs and benefits is the risk of terrorism."
Donald Trump's election as next US president has given the gold price a short-term 'uncertainty' trading boost. However, Trump's keen interest in the gold standard is a trend worth watching over the next 4 years.
In the 1980s, the Fed decided that economists had learned sufficiently from the grave, global mistakes of the Great Inflation such that they would compensate for the evolution of money by controlling just a single interest rate. It was, essentially, an underpants gnome schematic: "1. Target federal funds rate. 2. .... 3. Control Economy."
In a recent interview with Macro Voices, Hugh Hendry is asked about the trade he has on in his fund, to which the Scotsman says that his team recently had a “eureka moment” and figured out how to design a trade, which has a negative carry when viewed in simple terms, such that they preserve the asymmetric of risk/reward while converting it to a positive-carry trade by adding another “European sovereign component to the trade”.
The Great Recession was a result of a massive monetary policy error. The Fed kept rates too low for too long, which - when coupled with lax or no regulation in the mortgage markets - resulted in a housing bubble and a crash. This then bled over to global markets. We are again suffering the effects of a massive monetary policy error. The error has already been committed, but we have just begun to endure the consequences.
"...we surely do not want to unnerve markets by saying anything that would suggest your Treasury Department would undo this modification after January 20. However, the combination of the questionable terms of the original Fed lending and failure to increase the effective stake of taxpayers as part of this deal means that we should avoid saying anything that would identify us with this move."
"...debt is simply everywhere, at least to the extent we can see and measure it. Corporate and sovereign debt, of both the developed world and emerging market varieties, are at record levels. China’s debts certainly add to that record but who really knows to what extent? It’s the ultimate black box of leverage on Planet Earth... You cannot NOT worry about the Fed in this world...The simple truth is ending reinvestment would bring the bond market to its knees.”
It never ends because the “recession” never ended. Consumers quite literally never recovered, and the belief, once pervasive in the mainstream, that they did was predicated on but one narrow construct – the unemployment rate. It has been the single most important factor in misleading mainstream analysis, to give comfort to all these excuses as if they were valid because a sharply falling unemployment rate had always meant rising economic fortunes in the past.
Despite overwhelming factual evidence that crackpot Keynesian spending machinations; debasing the currency; interest rate manipulation; globalization; perpetual war; incurring unpayable levels of debt; making $200 trillion of unfunded welfare promises; has created a seething anger across the land, Hillary Clinton and her establishment flunkies propose doubling down on those same failed policies.